COMMISSIONLR OI IN1LRNAL RLVLNUL v.

PHILIPPINL HLAL1H CARL

PROVIDLRS, INC.
G.R. No. J68J29, 24 April 2007, Sandoval-Gutierrez, J. (Iirst Division)


P.1`. .errice. are ^O1 1.1eevt becav.e it aoe. vot actvatt, roriae veaicat
ava,or bo.itat .errice., a. roriaea vvaer ectiov10 of tbe ^atiovat vtervat Rerevve Coae of 1, a.
avevaea b, .O. 2 ava tbe 1.1 tar, bvt veret, arravge. for tbe .ave.

ectiov 21 of tbe 1 1a Coae, a. avevaea, roriae. tbat rvtivg., circvtar., rvte. ava
regvtatiov. rovvtgatea b, tbe Covvi..iover of vtervat Rerevve bare vo retroactire aticatiov if to at,
tbev rovta re;vaice tbe taa,er. 1be ecetiov. to tbi. rvte are: ;1) rbere tbe taa,er aetiberatet,
vi..tate. or ovit. vateriat fact. frov bi. retvrv or iv av, aocvvevt reqvirea of biv b, tbe R; ;2) rbere
tbe fact. .vb.eqvevtt, gatberea b, tbe R are vateriatt, aifferevt frov tbe fact. ov rbicb tbe rvtivg i. ba.ea,
or ;) rbere tbe taa,er actea iv baa faitb. |vaer tbi. rvte, tbe Covvi..iover i. rectvaea frov aaotivg
a o.itiov covtrar, to ove reriov.t, ta/ev rbere iv;v.tice rovta re.vtt to tbe taa,er.

Philippine lealth Care Proiders, Inc. ,PlILlLAL1l, is a corporation that
establishes, maintains, conducts and operates a prepaid group practice health care deliery
system or a health maintenance organization to take care o the sick and disabled persons
enrolled in the health care plan. It wrote the Commissioner o Internal Reenue
,Commissioner, to inquire whether the serices it proided to the participants in its health
care program were exempt rom the payment o the Value-Added 1ax ,VA1,. 1he
Commissioner, through the VA1 Reiew Committee o the Bureau o Internal Reenue
,BIR,, issued VA1 Ruling 231-88 stating that PlILlLAL1l, as a proider o medical
serices, was exempt rom the VA1 coerage.

Meanwhile, Republic Act 16 ,L-VA1 Law, took eect, amending urther the
National Internal Reenue Code o 19. Subsequently, R.A. 8424 ,National Internal
Reenue Code o 199, took eect, substantially adopting and reproducing the proisions
o L.O. 23 on VA1 and the L-VA1 law. \ith the passage o these laws, the BIR sent
PlILlLAL1l a Preliminary Assessment Notice or deiciency in its payment o the VA1
and documentary stamp taxes ,DS1, or taxable years 1996 and 199 and a letter demanding
payment o deiciency VA1` and DS1 or taxable years 1996 to 199.

PlILlLAL1l iled a protest with the Commissioner but the latter did not take
action on its protest. Consequently, PlILlLAL1l brought the matter to the Court o 1ax
Appeals ,C1A,. 1he C1A partly granted its petition, declaring VA1 Ruling 231-88 oid and
without orce and eect and ordering it to pay the VA1 deiciency, but canceling the
payment o DS1. Ater a Motion or Partial Reconsideration, C1A oerruled its decision
with respect to the payment o deiciency VA1 and held that PlILlLAL1l was entitled
to the beneit o non-retroactiity o rulings guaranteed under Section 246 o the 1ax Code,
in the absence o showing o bad aith on its part. 1his decision was airmed by the Court
o Appeals. lence, this petition or reiew on certiorari.

ISSULS:

1, \hether or not PlILlLAL1l`s serices are subject to VA1
2, \hether or not VA1 Ruling 231-88 exempting PlILlLAL1l rom payment o
VA1 has retroactie application

HLLD:

Petition DLNILD.

PHILHLAL1H's services are not VA1-exempt.

1he laws relating to the imposition o VA1 proide that a VA1, equialent to 10
,now 12, receipts deried rom the sale or exchange o serices, shall be leied, assessed
and collected. 1he phrase sale or exchange o serice` means the perormance o all kinds
o serices in the Philippines or a ee, remuneration or consideration, including those
perormed or rendered by construction and serice contractors. One o those exempted to
the VA1 are those engaged in the perormance o medical, dental, hospital and eterinary
serices except those rendered by proessionals.

1he C1A made the conclusions that PlILlLAL1l is not actually rendering
medical serice but merely acting as a conduit between the members and their accredited
and recognized hospitals and clinics, that it merely proides and arranges or the proision
o pre-need health care serices to its members or a ixed prepaid ee or a speciied period
o time, that it then contracts the serices o physicians, medical and dental practitioners,
clinics and hospitals to perorm such serices to its enrolled members, and that it enters into
contract with clinics, hospitals, medical proessionals and then negotiates with them
regarding payment schemes, inancing and other procedures in the deliery o health
serices.

1hese actual indings were neither modiied nor reersed by the Court o Appeals
,CA,. It is a doctrine that indings o act o the C1A, a special court exercising particular
expertise on the subject o tax, are generally regarded as inal, binding and conclusie upon
the Court, more so where these do not conlict with the indings o the CA. Perorce, as
PlILlLAL1l does not actually proide medical and,or hospital serices, as proided
under Section 103 on exempt transactions, but merely arranges or the same, its serices are
not VA1-exempt.

VA1 Ruling 23J-88 has no retroactive application.

Section 246 o the 199 1ax Code, as amended, proides that rulings, circulars, rules
and regulations promulgated by the Commissioner hae no retroactie application i to
apply them would prejudice the taxpayer. 1he exceptions to this rule are: ,1, where the
taxpayer deliberately misstates or omits material acts rom his return or in any document
required o him by the BIR, ,2, where the acts subsequently gathered by the BIR are
materially dierent rom the acts on which the ruling is based, or ,3, where the taxpayer
acted in bad aith.

1he Court agreed with the indings o the C1A and CA that there is no showing that
PlILlLAL1l deliberately committed mistakes or omitted material acts when it obtained
VA1 Ruling 231-88 rom the BIR. 1he C1A held that PlILlLAL1l`s letter which
sered as the basis or the VA1 ruling suiciently described its business and there is no way
the BIR could be misled by the said representation as to the real nature o said business.
Moreoer, the CA ound that the ailure o PlILlLAL1l to reer to itsel as a health
maintenance organization is not an indication o bad aith or a deliberate attempt to make
alse representations. As the term health maintenance organization did not as yet hae any
particular signiicance or tax purposes, its ailure to include a term that has yet to acquire its
present deinition and signiicance cannot be equated with bad aith. 1he term health
maintenance organization` was irst recorded in the Philippine statute books only upon the
passage o the 1he National lealth Insurance Act o 1995. 1he said law deines health
maintenance organizations as an entity that proides, oers, or arranges or coerage o
designated health serices needed by plan members or a ixed prepaid premium.` Under
this law, a health maintenance organization is one o the classes o a health care proider.`

It is thus apparent that when VA1 Ruling 231-88 was issued in PlILlLAL1l`s
aor, the term health maintenance organization` was yet unknown or had no signiicance
or taxation purposes. 1he latter, thereore, belieed in good aith that it was VA1 exempt
or the taxable years 1996 and 199 on the basis o VA1 Ruling 231-88.